Real estate investors utilize different investment strategies to make money. Some repair and flip homes; others buy rental properties and hold onto them for monthly cash flow. Based on what real estate investment strategy you employ as an investor, you might benefit greatly from getting an FHA loan. Investors do fulfill the qualifications to obtain at least one kind of FHA loan, though some do not.
FHA Loans
FHA loans are backed by the Federal Housing Administration, a government company. Though the FHA doesn’t directly contribute the money, it guarantees FHA mortgages created from FHA-approved lenders. A lot of people think that FHA loans are just for first-time house buyers, but you may actually take out an FHA loan on your property. You cannot have more than just one FHA loan at a time, however.
Investment Benefits
Among the main benefits of working with an FHA loan within an investor is the capability to put down hardly any money for a deposit. To get an FHA loan, a borrower or investor is simply required to have a deposit of 3.5 percent, as of July 2010. FHA loans generally have lower rates of interest than conventional loans because they are insured by the national government.
Accessible Properties
An investor who purchases commercial properties cannot meet the requirements for an FHA loan. FHA loans are only available on residential properties of one to four components. FHA loans can also be used to buy condominium units or manufactured homes on permanent foundations. Realtor.com says that FHA loans can only be employed on owner-occupied homes. An investor cannot qualify to obtain an FHA loan on a property that he never plans to reside in. He is, however, use an FHA loan to buy a four-unit home, reside in one of those components and let the others out.
Debt-to-Income Ratio
To obtain an FHA loan, an investor must have the correct debt-to-income ratio. Bankrate.com says that the Federal Housing Administration requires borrowers to have a debt-to-income ratio of 31 to 43 percent. This usually means that you cannot owe more than 43 percent of your monthly income in debt, such as additional mortgages. Investors that have too much debt or inadequate income would not qualify.
FHA 203(k) Loans
FHA 203(k) loans have been intended for a specific kind of real estate investor. According to the Department of Housing and Urban Development, FHA 203(k) loans may be used to buy and fix properties in distress, such as homes which have been foreclosed on. Although the creditor, the debtor and the house must be pre-approved from the Federal Housing Administration, these kinds of loans may be helpful for investors that fix and flip properties that they reside in.